Without a new farm bill, the 2010 cotton-related deal struck between the United States and Brazil could unravel and reignite a trade war.
The deal – which calls for the United States to pay $150 million annually to Brazilian cotton-farming interests – became necessary after the South American nation filed a 2002 complaint with the World Trade Organization alleging U.S. cotton subsidies were illegal. In 2004, the WTO agreed with Brazil, forcing the United States to the negotiating table.
Why did the United State agree to pay the $150 million annual penalty? Because the WTO ruled Brazil was able to “cross-retaliate” with $830 million of tariffs a year on all manner of U.S. goods.
With that backdrop, on Wednesday (August 7), USDA Secretary Tom Vilsack, in the midst of a trip to Brazil, ratcheted up pressure on Congress to pass a new farm bill quickly. Congress, currently on August recess, will be back in session in early September with only a few days to pass new legislation before current law expires.
Also in the mix: the automatic sequester cuts mandated by Congress that took effect earlier this year. Barring action by Congress on the sequester cuts or a new farm bill, Vilsack claimed he is powerless to continue monthly payments to Brazil. A $6 million September payment – half the normal amount -- will be the last made without movement by Congress.
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Vilsack said he has "neither the authority nor the money to make any payment in October or thereafter."
He also said his Brazilian counterparts were not happy with the news and would be considering “retaliatory measures.”
Shortly after Vilsack’s remarks, the National Cotton Council weighed in. In a statement, the NCC said it “has consistently recognized that a new multi-year farm bill is the way to achieve a final resolution of the cotton portions of the longstanding trade dispute with Brazil. The industry urges Congress to move forward expeditiously after the August recess to finalize new farm legislation. It is imperative for upland cotton's Stacked Income Protection Plan (STAX) to be implemented for the 2014 crop and for the new legislation to serve as the basis for resolving the trade dispute.”